A slew of figures yesterday suggested that, as house prices have fallen, consumers’ confidence in the economy has declined and they have begun to curb high-spending habits.

The Bank of England announced yesterday that mortgage lending rose in August at its slowest rate for a year.

A survey of consumer confidence, by GfK Martin Hamblin, showed the mood in September was at its worst since March 2003, while the CBI reported that sales on the high street have fallen for the first time since then.

Retailers expect their books to look in worse shape next month than at any time since the mid-1990s, the CBI added, saying that interest rate rises should now be put on hold.

Analysts said that its warning might be heeded after Kate Barker, a member of the Bank of England’s rate-setting Monetary Policy Committee (MPC), said that rates were close to a peak.

She said: “Clearly we are closer to a point when that’s not what you are signalling (that monetary policy is tightening).”

She added that the current interest rate, 4.75 per cent, might be in the range of the so-called neutral rate level.

Ross Walker, of RBS Financial Markets, said that the MPC might now be split over whether to increase rates in November, as has been widely expected, and would be unlikely to raise them subsequently.

The Bank’s figures on lending, which confirmed earlier data from bankers, showed that mortgage borrowing dropped in August to a net £8.4 billion from £8.7 billion in July.

The decline was less than the City had expected. The number of new mortgage approvals for house purchase fell to 96,000, the lowest level since February 2003.

GfK’s survey showed consumer sentiment slipped to minus 7 in September from minus 5 in August, the lowest level since the start of the war in Iraq, in March 2003.

The driving force behind the drop was a decline in consumers’ willingness to make major purchases, a factor closely associated with the housing market. The major purchases index declined to plus 4 from plus 7, the lowest reading since the end of 1999.

The CBI said that 38 per cent of retailers reported a fall in sales in September, while 29 per cent reported a rise. It was the first time that more retailers have reported a fall than a rise since March 2003.

Retailers were gloomier about future prospects. Four per cent more retailers expected sales to be down in October than up, the first negative expectation since March 1995.

The employers’ group said: “The underlying trend is now one of sluggish sales growth, in stark contrast to the robust expansion seen in spring and early summer.”

The data came as GDP in the second quarter was left unrevised at 0.9 per cent. Annual growth was 3.6 per cent, the Office for National Statistics reported.

The numbers confirmed that consumer activity has already slowed sharply. Consumer spending growth dropped to just 0.6 per cent in the second quarter, revised down from 1.1 per cent.

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